UPDATE 3-BSkyB Chairman James Murdoch quits

Tue Apr 3, 2012 11:00am EDT

* Murdoch says does not want hacking scandal to damage BSkyB

* Decision ahead of crucial parliamentary report

* Investors welcome move

By Kate Holton and Georgina Prodhan

LONDON, April 3 (Reuters) - James Murdoch resigned as chairman of BSkyB on Tuesday to prevent his links to a phone-hacking scandal that has convulsed his father Rupert's media empire undermining the pay TV group, whose broadcast licence is under scrutiny in Britain.

"I am aware that my role as Chairman could become a lightning rod for BSkyB and I believe that my resignation will help to ensure that there is no false conflation with events at a separate organisation," Murdoch said.

The 39-year-old is a previous chairman of News International, News Corp's British newspaper arm that was the publisher of the News of the World tabloid at the heart of the scandal before it was shut down last year.

"As attention continues to be paid to past events at News International, I am determined that the interests of BSkyB should not be undermined by matters outside the scope of this Company," Murdoch wrote in a letter to the BSkyB board.

His conduct is under scrutiny by a powerful parliamentary committee that is expected to deliver a critical report soon, as well as by the UK TV regulator and a judge-led inquiry into press ethics.

The regulator, Ofcom, has been investigating whether BSkyB is a "fit and proper" owner of a broadcast licence given its close relationship with Murdoch and its 39 percent owner News Corp.

Murdoch arrived at News International after the phone-hacking had died down but has been criticised for failing to uncover the scale of the wrongdoing.

He will remain on the board and will be replaced as chairman by Nicholas Ferguson, who was previously deputy chairman and senior non-executive director.

Investors and analysts welcomed the move, although they said they had no complaints about Murdoch's conduct at BSkyB, where he proved himself as a talented executive in his own right in his previous role as CEO.

"I have no particular axe to grind about James Murdoch, but... at least it would remove some uncertainty from the stock. Investors could get back to focusing on the company's business rather than its corporate governance issues," said a UK-based top 30 BSkyB investor who asked not to be named.

Thomas Eagan, a U.S.-based analyst with Canaccord Genuity, said: "I think it makes it easier for News Corp to pass the fit and proper test and it is a gesture made by Sky and News Corp for them to keep their licence."

POLITICAL CONNECTIONS

After long denying that phone-hacking was institutionalised at the News of the World, the tabloid eventually admitted last year it had hacked into the phones of a murdered schoolgirl and British war dead as well as politicians and celebrities in its search for ever more-sensational front-page stories.

The affair rocked the British newspaper establishment, politicians and police, as links were exposed between the powerful Murdoch press, Prime Minister David Cameron and senior police officers, two of whom resigned.

Cameron was forced to accept the resignation of his spokesman, ex-News of the World editor Andy Coulson, and was cornered by opposition leaders newly emboldened to challenge Rupert Murdoch's long-established influence over the government.

James Murdoch has continued to plead his innocence but the ongoing investigations have severely dented his chances of inheriting his father's media empire, once thought to be his for the taking.

"You've got to see whether he can really seal himself off from any further criticism," said media commentator Roy Greenslade, a former Murdoch editor, adding that investigations by U.S. authorities would be key.

The Federal Bureau of Investigation is examining whether phone-hacking occurred inside the United States, and the company could potentially also be accused of bribery offences in Britain under the U.S. Foreign and Corrupt Practices Act.

As well as an investigation into phone-hacking, British police are also probing allegations of bribery and computer hacking by News International.

Murdoch, who was previously chief executive of BSkyB, was dealt a heavy blow in November when more than 40 percent of the company's independent shareholders failed to back his re-election as chairman.

Since then he has stood down from his board positions at News Corp's British newspaper arm, as well as from the boards of other companies, and moved to the United States to take up his new role running international pay-TV.

Greenslade said the multiple investigations into News International and its executives, with both James and Rupert Murdoch expected to be hauled in front of a judge-led inquiry in the coming weeks, had likely prompted James's departure.

"I do think the Leveson inquiry, Commons Select Committee report and the Ofcom fit and proper test are a triple whammy. He really must have known it was better to go sooner rather than later," he said.

The chairman of the parliamentary select committee, John Whittingdale, told Reuters that James Murdoch had not seen its forthcoming report.

"We have not given wind to anybody of what might be in the report," he said, adding that the removal of Murdoch as chairman of BSkyB would allow the successful pay-TV group to distance itself from the wider problems at News Corp.

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